Talk given to the MBA Class of the St.Gallen School of Management
NCAER, Delhi, March 6, 2001
Recently, I heard about a round-table discussion which debated on the following theme: "India a Tiger about to leap, or an Elephant in a cul-de-sac?" It made me think whether such images are not limiting our vision of a country. Once we put the tag of the Elephant on a country, it is clear that it could never 'leap' ahead, while a Tiger country would never end up in a no-way street it would just climb over the walls. You are all aware that this animal imagery of the jumping Tiger has become a familiar term in the last ten years when it was used to describe the economies of East and South East Asia. They were, after all, growing at one point by ‘leaps and bounds’. When India opened up its economy in the early Nineties, the metaphor of the Elephant was added to the menagerie of business journalists. Wasn’t India just like an Elephant huge, slow, heavy but steady? It seemed a better animal to describe the South Asian giant than the quick-footed Tiger, despite the fact that it is the Tiger which is India’s national animal. But it is the Elephant which is linked to the popular mythology of the two great religions which have started in India, Hinduism and Buddhism - the elephant-headed Ganesha is without doubt India's most popular god, and Buddha was conceived after his mother dreamed of the visit by a white male tusker.
So the comparison of India with an elephant makes some sense. To me there was another reason to use it: It reminds me of the old Indian folktale of the five blind men. Each of them is led to an elephant and asked to describe the animal after touching it. But each of the "five blind men of Hindustan" that is the name of the tale touches a different part of the mammal. One feels the trunk, the other the tusks, the third the soft skin of the underbelly, the fourth a leg, the fifth blind man strokes the tail. They end up talking about five different animals.
I feel that this is an apt description of the risk in which anybody, but especially a foreign observer finds himself when trying to make sense of this huge animal called India. Now I am not going as far as to say that we foreign journalists are blind, but we are in constant danger of looking only at one part, and missing the whole for the part. So the best we can do is describing the parts, even if they look different and contradictory, and refrain from extrapolating, and leave them there contradiction.
Why is that necessary? It is not only, and not even primarily, the size of India and its economy which challenges a comprehensive description. There are countries which are even larger Russia, the USA, China. India is different in that it has not only a large horizontal (i.e. geographical) spread. But this subcontinental landmass is densely populated and has a highly diversified agglomeration of ethnic and social groups. The Census exercise, which has just ended after a ten-year gap, was conducted in 114 languages. Moreover, this country has, laid out on this horizontal axis, a vertical depth of time, where you have some 800 years of historical development living side by side, i.e. synchronically. You only need to go to Old Delhi in order to witness on the streets what I mean: a camel cart blocking the way to a Mercedes Benz, a cyber café with a fortune teller sitting on the pavement in front of it, a woman veiled from toe to head crossing the way of a girl in jeans and tank-tops.
India is famous for these neat and catchy contradictions. Millions of tourists have photographed them and turned them into clichés, to take home and show their curious friends: The farmer who works his parched land with an ox and a wooden plough while the background shows the contours of the cooling towers of a nuclear power plant; the figure of a naked Hindu saint, smeared with ash, smoking pot while holding a cellphone against his ear. Or the images which must have impressed themselves on your mind when you entered the city of Bombay, between your jet and your hotel of families living, sleeping, cooking on the pavements in utter misery. Maybe some of you have even seen the newspaper picture last week of a Hindu priest who sprayed holy Ganges water on the computer terminals of the Calcutta Stock Exchange just before the Budget speech of the Finance Minister last week and in order to influence its outcome.
There is another image which captures this contradiction even more starkly for me: In a village just outside the city of Pune a huge info-tech park has been built recently, with a number of Indian and international companies setting up their offices there. In this same village the people continue to celebrate a festival once every year, to worship the local goddess. They ask for her blessings by pulling a big carriage up to the top of a hill where the temple of the Devi stands. But the striking thing is this carriage: A long pole is fixed horizontally on it. On one side, some young men are holding on to it with chains and ropes. On the other side hangs a man with a naked torso bleeding profusely and shouting in pain, before falling unconscious. He is tied to two metal hooks, which have been driven into his bare back. The carriage with this balancing pole is pulled and pushed by hundreds of men through the village and up to the temple. After two hours the ceremony is over, the hooks are removed from the man, and his wounds are being cared for with turmeric paste in order to prevent an infection. Looking down from the hill you can see the glass-and-metal palace of Infosys, India’s largest software company.
Pictures like these shock, amuse, entertain the visitor, while serious students of India as well as many Indians are uncomfortable with them. But what I would like to argue here is that these stereotypes hide a fundamental reality of India. They may exaggerate the contradictions, but they are also one perhaps clumsy way of coming to terms with this puzzling animal that is India: thick-skinned and sensitive, strong and vulnerable, slow and yet sure-footed, nimble and earth-shattering. As someone said, India is a rich country with poor people. India is a high-tech country with often medieval social customs.
To approach these paradoxes and I cannot do more than that , I will not use a powerpoint projection. It would suggest a uniformity of the Indian reality which would be so simple as to be wrong. I will set before you some of these contradictions, and put them in context - historical, social, and economic. As is natural, you will not get any ready-made answers. They will be partial and often paradoxical, sometimes resembling the tail of the elephant, and sometimes looking like its trunk. My interpretation will be a far cry from capturing the full animal in fact I will be a bit one-sided on purpose, in order to provoke your questions and alternative perceptions.
Let me start by telling you the stories of two elderly gentlemen, one whose name is George Fernandes, the other we will call Sanjay Biswas. The first story picks up in the slums of Bombay, mentioned a minute ago. Recently, George Fernandes was reminiscing about the time when, as a young boy, he had come to Bombay from South India, looking for a job. With millions like him, he landed up in a slum, living under a tin roof with dozens of people in one room. Together with thousands of others, Fernandes was evicted from the hutments by the police when the State wanted to build a nuclear Research Station there. He fought against his eviction, and this became the beginning of his career as a successful Trade Union leader. But at that moment he had lost, and he had to move on to the next slum. Mr. Fernandes told this story three weeks ago to a distinguished audience of officers at a glittering parade of the Navy, where he was the guest of honour he is today the Minister of Defence of India.
Let me stay a moment longer with Fernandes, because his career from slum to the centre of power is not the only remarkable thing about this man. For the most part of his political life, Fernandes, a trade-union leader and a socialist, has been fighting for the rights of workers, against what he saw as the greed of private entrepreneurs and the conquering designs of multinationals. Today he is the member of a Government which has done probably more to open the economy to the private sector and to the outside world than any other government in independent India. But you may interrupt me here and point out that George, as he is known by everyone, is not the Finance but the Defence Minister. Correct, but then Mr. Fernandes was Industry Minister 24 years ago and was responsible for throwing out IBM and Coca Cola from the country, because one company refused to transfer its computer technology to India free of charge, while the other refused to reveal the secret formula for its Coca Cola concoction to the Government.
But even within his own Defence portfolio you can find interesting contradictions. Fernandes has been a lifelong champion against nuclear armaments. To remind himself of the nuclear holocaust there is a large photograph of the mushroom cloud of Nagasaki hanging in his office. Yet he is the man under whom India has exploded a nuclear device in 1998. That was not for peaceful purposes as in 1974, when it first exploded a fission device, but to build a nuclear deterrent in the form of atomic bombs.
And to add a last angle to this man of many paradoxes: Fernandes is a catholic and as such a member of a small religious minority. Yet he is also the Manager of a coalition of parliamentary parties called the "National Democratic Alliance". The dominant element in this coalition is a Party the Bharatiya Janata Party or BJP which is considered by many to be often chauvinistically Hindu in its outlook. It is a party that is said to tolerate and sometimes justify attacks against Muslim mosques and Christian churches and priests.
There are of course many people in India who consider George Fernandes a maverick of a politician who stretches himself to accommodate all the political currents. This is not fair, because unlike other politicians Mr. Fernandes comes across as an intense man of strong convictions, and there is evidence to suggest that Fernandes believes profoundly in what he does. To me, he is only an example of the archetypical politician in India, although an extreme example. In order to accommodate a reality which is so profoundly complex and contradictory, every politician has to live with these contradictions, whether they are of an ideological nature, or of an economic or of a political one.
But let me go a little deeper into the issues which the example of the politician Fernandes raises. I would like to look at three areas in which India lives with intense contradictions and which anyone who wants to understand this country needs to live. One is democracy and the State, the other is the social space, and the third is the economy.
When I said that Fernandes lived in the slums of Bombay and could become a senior Minister in the Government I meant it as an illustration to the fact that the political system of India is democratic not only in name, but in practice as well. Despite a strong hierarchy of caste and class, a slum kid can become a Minister - just as a Dalit, the word for the lowest rank in the caste system, is today the President of the country.
India, as you all know, is the world’s largest democracy. It was a huge gamble when the first Parliament of independent India decided in 1951 to adopt a democratic constitution. How could a country be democratic which had 80% illiterates in its population, where 95 percent of the villages were not connected by road and had no electricity, no radio, no telephones and (at that time) 180 spoken languages.
Yet the largest country of the world after China has been one in a few successful experiments with democracy among developing States. Not only has it had regular elections, its fundamental rights are protected by a fiercely independent judiciary. It has a free press and a large number of civil society institutions. Fundamental rights have been suspended only once and briefly (in 1975/76) in fifty years. Even today half of India’s villages 297’000 to be exact are not connected by an asphalted road, but by mud tracks and bicycle paths. 80’000 villages do not have, according to the Finance Minister in his Budget speech last Wednesday, access to electricity. And yet, two years ago a number almost twice that of Europe's population went to the polls.
The democratic principle operates not only in the election of a national Parliament. India is a federal State, where each of the now 28 States have their own parliaments. It is a legacy of the British colonial masters, who wanted to give Indians a political voice in the provinces, so that the Viceroy could rule in Delhi without too much interference from local politicians. The federal principle is still operational: Last year, three new States were carved out of existing States. It shows that the federal structure is flexible enough to accommodate linguistic, ethnic and economic pressures. The same democratic principle operates on the local level. A few years ago, parliament even extended the power of local bodies, giving them a higher degree of financial autonomy. At the same time, the constitutional amendments provided for a thirty percent representation of women in these village councils something which the national parliament in Delhi has not yet been able to impose on itself.
Yet as I said earlier India constantly contradicts itself and proves the statement that "whatever one says about it, the opposite is just as true". I can illustrate it with the story of a another man, Sanjay Biswas from West Bengal. He was imprisoned around the same time as Fernandes was evicted from his slum dwelling in Bombay. His alleged crime had been the theft of a purse. But no charge was ever brought against him, and he was released only a few months ago, an old man, physically and mentally ruined. For forty years he had just disappeared from the world and fallen into a bottomless black hole of an uncaring and huge bureaucracy.
The example opens a window to the other side of a country of one billion people and its State institutions, which are so beleaguered that they cannot cope. Presently there are over ten million judicial cases which are pending before various courts all over India. For the ordinary citizen the democratic system with its many compromises, with its slow process of government and the heavy hand of a bureaucratic apparatus then suddenly becomes a millstone around the neck, because he does not have the power to defend him- or herself. It leads to a corruption of the system where a man can languish in jail for his whole life for an alleged petty crime. Today, ninety percent of the 8500 prisoners in Asia's largest jail Tihar in Delhi are undertrials, i.e. wait for their cases to be heard. Most of them have now been under arrest far longer than the maximum of their prison sentence, if they would be convicted.
It is the paradox of Indian democracy: Behind the reality not just the façade of a large democracy lies the steel frame of a State who is merciless to those who cannot use influence and connections. India has one of the worst records in human rights abuses, and the image of non-violence which it cultivates is a mirage: it is certainly a country with a lot of violence. Paradoxically, one reason for this might be the approach which Jawaharlal Nehru took fifty years ago in order to help democracy survive. Together with Mahatma Gandhi Nehru was the founder of the modern Indian State, and both were committed democrats. But unlike Gandhi Nehru was, apart from being an aristocrat, also an autocrat. He was concerned that democracy would not be a strong enough glue to bind the young country together. India in 1947 was split into deep divisions of religions, of castes, of regions, languages and saddled with huge economic disparities. The fight for independence had temporarily covered up these rifts, uniting the country against the colonial ruler. But as soon as the common adversary set sail for England, they broke open. The clashes between Muslims and Hindus, which followed the independence of the country and its division in 1947 led to a mass migration and the violent death of more than one million people.
Nehru’s answer to this risk was not to cut down on democratic rights and fight for an autocratic constitution as did Pakistan next door, with disastrous long-term results. He adopted a democratic political system, but he left the administrative machinery of the British colonial rulers intact. The result was a curious mix of a lively democracy and an authoritarian State. You could witness it during the days of your visit, when the budget got a lot of applause, but alse earned loud protests in parliament and in the streets, in the newspaper columns and on TV roundtables. It is a sign of the openness ot this country - but when you see the almost religious interest with which the budget presentation is followed, you may realise what an all-important role the State still plays in the everyday life of its citizens. There are a huge amount of laws which regulate the society. Many of them were taken straight out of the colonial rulebook, and thus they were authoritarian and often draconian. For example, the Official Secrets Act was conceived by the British in order to insulate their administration from scrutiny. That same Act is still in force today and makes it very difficult for a citizen to get information on issues of public concern.
Even today, the Administrator of a District wields enormous power he has police functions, but also judicial powers, he looks after a number of economic activities from road-building programmes to power distribution, he oversees educational and health facilities etc. Many of these activities have been diluted in recent years, and village councils and city parliaments have been gaining power. But on the whole, the "Deputy Commissioner" as he is still called like in the British days still is the King of a District, and he is treated as such.
What has this mix of democracy and autocracy done to India? The combination of democratic franchise and an authoritarian administrative-political framework has undoubtedly provided stability to the country, especially when you compare it with Pakistan, where the Army had stepped in to take over this role. It helps explain why a country with so many pressure points, distortions and tensions has not exploded or broken apart. It has provided the society with a stable space within which the democracy has slowly broadened and deepened.
And yet, India has had to pay an enormous price for it in terms of the quality of life of its people. The compulsions of having to rule a large country and a highly diversified society have led the politicians and bureaucrats to follow a political path where safety and stability was more important than social empowerment. Take for example education. The Indian Constitution has laid down the principle of universal education, and set the goal for achieving total literacy within ten years. Fifty years later half of India’s population is still illiterate. A powerful combination of elite interests has seen to it that no State of the Union has until today declared primary education compulsory. Even today, out of five girls who join school, only two will still attend it by class five, and at the end of Class twelve, only one will be take the exams.
This brings me to the second set of contradictions, those of Society.
Let me start by turning the tables yet again. As you must have seen during your trip, India today produces a large number of highly skilled professionals engineers, management experts, economists and scientists. Amartya Sen, the Nobel Prize Winner for Economy, has studied and compared the educational systems and policies of India and China. He has found that for every university graduate which China produces, India produces six. But on the other hand, China has reached almost hundred-percent literacy, double that of India. This can easily be explained by the budgetary allocations in Education. According to the World Bank, India spends 4% of its GDP for education; out of that, two thirds flow into higher education, the rest goes to primary education and literacy programmes. In China, the relative allocations are exactly the reverse.
What has been the effect of these policies? I do not need to comment on the positive effects, they are clear to all of you after visiting Bombay and Bangalore. IIT graduates are today occupying high management and technical positions in almost half of all Fortune-500 companies. But if you had asked the students and engineers and Bankers whom you have met during the last two weeks, to which caste they belonged, you would have realised that an overwhelming majority come from the higher castes, and you would find very few people from low castes and even less from untouchables.
India’s President may be a Dalit, and as I mentioned earlier this shows that there is an openness in the system that allows for social mobility. But overall I am afraid it is more the exception than the rule. Neither education, nor democracy, nor State socialism has been able to turn Indian society into a society of equal opportunities, and that has been one of its constraints which have held it back and only allowed progress in certain pockets. In fact, many sociologists would argue that it is precisely the policies designed to protect and promote the lower castes which have reinforced the caste system.
The so-called "reservation system" may have allowed for the emergence of a small elite of lower-caste businessmen and bureaucrats, who have benefited from job and school quotas, and of politicians who took advantage of the reservation of parliamentary seats. But they have left the large mass of Dalits in the lowest economic strata of society, they have in fact strengthened the boundaries between the castes and reinforced their respective identities which for tens of millions means the stigma of being born into an inferior group. Fifty years ago India promulgated a Constitution which prohibited the concept of caste and which set up constitutional mechanisms to make sure that the whole caste system would disappear in a few years. Today, caste is alive, and so are its limiting effects on social mobility and economic advancement.
This leads to the third set of contradictions, the economic ones.
This is an area which doesn’t need much of an illustration, because you couldn't overlook them, even with ten days in India. But let me introduce this last part with an example from the recent past. Last week, one day before the Budget speech, "The Times of India" published a report from a village not more than 70 Kilometers away from Delhi. Nobody there knew the name of the Finance Minister, nor did they care for his speech. The village had some TV sets, but with power supply of ca. one-and-a-half hours per day, there was little hope that they would catch it anyway. The village had a Health Centre, but no qualified staff, and it had a school building, but no teacher. Meanwhile, those of you who watched the Budget presentation could follow, on the TV screen, a graphic which monitored the performance of the Bombay Stock Exchange minute-by-minute.
To find some possible clues to explain this well-known set of contradictory facts, one will again have to go back some fifty years, to the founding days and fathers of independent India. I have said earlier that the fears of a break-up of India had led them to give India a democratic foundation, with a strong authoritarian State. The same approach was taken for the Economy. Nehru had the vision of bringing India to the threshold of an industrialised Economy within a short time. The developing countries, he felt, had only a chance of catching up with the rich if they could somehow avoid the long and messy road of a market economy. For a Fabian Socialist like Nehru moreover, a capitalist economy was morally ambiguous, because it would heighten the economic divide between rich and poor. In the case of India such a path would have deepened the tensions within the social groups which were already strong on account of religious, ethnic and regional factors.
A strong State economy provided the answer. Five-Year Plans would direct investments into those areas which were important, the government would hand out licences which would prescribe what, and how much, and at what price to produce. And strong laws regulating the major production factors like labour, land, and capital would ensure their efficient allocation. But India chose not the Chinese way, putting the whole economy into State hands. It opted for a "Mixed Economy".
There were several reasons for this. At the time of the British rule, India had already developed a strong entrepreneurial class. These businessmen and industrialists had supported the independence movement. The politicians were indebted to them and could not opt for a pure form of socialism. But there was another motive for choosing this "mixed" model. Even the industrialists had, in the famous "Bombay Plan" of 1943, approved of the socialist, or rather the "Statist" model of development. It is an indication of how deeply the colonial experience had affected the collective psyche of the country with effects to this day. India had been colonised not by a foreign State, but by a Trading House, the East India Company. To my mind, this partly explains the longevity of this peculiar form of State Capitalism, which was never really challenged except in the Seventies by a liberal Party which remained a fringe phenomenon. After all, every liberalising step towards market reforms was the result of a crisis, and therefore of compulsion, rather than conviction. The deep-seated distrust towards economic liberalisation came to the fore again a few days ago when the sale of a medium-sized aluminium company raised a storm of protest in Parliament.
Again, it would be wrong to overlook the economic achievements of this system, apart from those of political and social stability. India has indeed built an economic infrastructure which allows for the production of almost anything within its borders from needle pins to satellites. Its industrial base is strong and broad enough to be practically independent of vital imports, with the exception of petroleum products. Its recent successes in the software industry have shown that the economy now has enough depth to project 50% growth rates in its IT-exports for the next eight years. Its agriculture has grown from a foodgrain-deficient economy with an output of some 50 million tons per year to one which produces 200 million tons, and which has buffer stocks of another 45 million.
But this last-mentioned success also shows its weakness and structural imbalance. For, while the country sits on a huge stockpile of foodgrains, at least 260 million people if one believes the optimistic assessment of the Government do not get two square meals a day. And there is a drought in several States of the country which could reach famine proportions if this year’s monsoon fails.
The foodgrain economy is a drastic example for an economy which has been distorted by the interference of the State. The scandal is not so much that surplus farmers are being subsidised to the tune of 120 billion Rupees a year European farmers are getting even more from their governments. The scandal is that the economic management of agriculture is so riven with regulations and bureaucratic controls that it cannot feed all its people in a country which has among the best alluvial soils in the world, water and a climate propitious for agriculture as I said, a rich country with poor people.
The same applies to basic and manufacturing industries. India is blessed with all the production factors to be a developed economy of minerals, energy sources, of a transport infrastructure with the second-largest rail network in the world and a skilled labour force which is among the largest in the world. There was a time in its history when it was a developed economy. Its trade balance with the Roman Empire was so positive that Emperor Augustus at one point had to monetise part of his Treasury's silver reserves in order to meet its payment obligations to India.
Due to an ever-present State control, the Indian economy during its first thirty years only grew by an average of 3.5%. During much of this time, the population grew by 2.5% per year which leaves just a 1% growth, far too little to catch up with the developed world. And if you look at the performance of the Public Sector Industries you will find that the State had actually slowed down development. Over the last fifty years, the State has invested some 150 trillion Rupees into the State Industries (not counting the Railways), the equivalent of 330 billion USD. The return on this capital was about 0.9%.
And yet, it needed the crisis of the oil shock in the mid-seventies to expose this economic mismanagement. It led to massive social unrest and political repression. The government then woke up and started to slowly open up to the market. Ten years ago, again a payment crisis forced it to accelerate its half-hearted reform attempts. Today, India urban, industrialised, India has changed almost beyond recognition. I do not mean so much the offerings to the consumer, which have multiplied and improved in quality. I mean the entrepreneurial energy of a young society which wants to achieve success and well-being. The IT industry, you will agree with me, is surely an eloquent example for this burst of energy.
Yet, we will not forget that the best and the brightest, after having been educated by this country, still leave it behind, because overseas opportunities are far better. We will not forget the man who was in prison for forty years, nor the village near Delhi, without a road, power, a school teacher and a nurse. And we will not forget that while I speak, there are dozens of revolts breaking out and armed battles being fought in this country against caste oppression and rich landlords in Bihar, between tribals and settlers in North-East India, between poor farmers and police patrols in the rural districts of Andhra Pradesh, between lower castes in South Tamil Nadu which are competing for the narrow economic and social space available to them not to talk of the insurgency in Kashmir. With perhaps the exception of this last conflict, all the others have to do with a lack of economic freedom and well-being, even if they are expressed in the form of religion, language or ethnic group. To speak with the title of a book by the writer V.S.Naipaul, India is a country which lives in "A Million Mutinies Now".
The trunk and the tail, the soft and the thick skin the Indian Elephant is all this and more. I do not think that it will, to revert to my statement at the beginning of this talk, end up in a cul-de-sac. The natural, historical and social wealth and depth of this country and society will prevent this. Like the animal, India combines a lumbering size with a nimble intelligence. But it is also slow and bulky, and again like the elephant - in a curious way it also lacks collective aggressiveness, however aggressive an individual entrepreneur or religious fanatic may be. After all, like the propagandists of the government never tire of telling us, India has never conquered another country. In fact, historically it has been invaded numerous times, and it has shown that it can absorb these shocks without losing its feet on the ground. But despite its youthful demographic profile it is also an old civilisation which has been bruised and battered, and which, in its collective memory, carries many wounds and hurts. But this 'elephantine' memory also means a strong social cohesion and the persistence of cultural values. After all, a majority of the Indian expatriate millionaires working in Silicon Valley still come back when they want to get married and they accept a wife chosen by their parents and the local astrologer.
So don't look out for India in the no-way street of failed democracies, or among the 'talibanised' States, or the basket-cases of development. You won't find it there. But don't expect it to leap like a tiger either.